Regular accounting method cannot govern income computation when accounts fail to disclose true profits under income-tax law.

Section 13 of the Indian Income-tax Act, 1922 makes the assessee's regularly employed accounting method the normal basis of computation only where true income, profits and gains can be properly deduced from it. If the accounts do not disclose the true figures, the Income-tax Officer must examine the accounts and form a judgment under the proviso rather than treat the stated results as conclusive. Here, systematic undervaluation of stock meant the accounts did not reveal the true profits, so the lower authorities erred in assuming the regular method had to be accepted merely because it was consistently used. The question was answered in the negative and the appeal failed.

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Issues: Whether, under Section 13 of the Indian Income-tax Act, 1922, income, profits and gains could be computed on the basis of the assessee's regularly employed method of accounting even though that method did not disclose the true income, profits and gains.

Analysis: Section 13 applies to the assessee's regular method of accounting for business purposes, not to the form of the statutory return. That method is the normal basis of computation only so long as the income, profits and gains can properly be deduced from it. If the accounts do not reveal the true profits, the Income-tax Officer must consider the accounts and form his judgment under the proviso, rather than accept the figures as conclusive. The facts showed that the stock valuations had been systematically undervalued and that the officers below had proceeded on the mistaken view that the accounts had to be accepted merely because the method was regularly employed.

Conclusion: The Income-tax Officer was not right in computing income, profits and gains on that basis when the method did not show the true figures. The question was answered in the negative, and the appeal failed.

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